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Winning Gamblers Still Lose If They Don't Keep Track for Taxes

Written by: Robert D. Flach02/06/13 - 10:00 AM EST

NEW YORK ( TheStreet) -- If you are a frequent visitor to the local track or casinos it is important to keep good records of your gambling winnings and losses. To deduct losses you must be able to provide receipts, tickets, statements or other records. If you play the lottery, keep your losing tickets. If you play the ponies, keep the daily track programs and all your losing tickets. And make sure the tickets you are saving don't have footprints on them!

Gross gambling winnings are reported as "Other Income" on Line 21 of your Form 1040. Gambling losses, allowed only to the extent of reported winnings, are allowed as a "Miscellaneous" Itemized Deduction. If you report gambling winnings of $10,000 on Line 21 of your Form 1040, the most you can deduct as gambling losses on Schedule A is $10,000. Allowable gambling losses are deducted in full and are not subject to the 2% of Adjusted Gross Income exclusion.

You will get a Form W-2G for each individual gambling win of $1,200 or more, including each win of $1,200 or more from a single slot pull.

Losses from any type of "wagering transaction" can be deducted against your reported gross gambling winnings. If you win in the slots, your deduction is not limited to losses from slot machines. You can deduct losses from the lottery, bingo, table games such as poker and blackjack, raffles, horse racing, keno, etc.

Recent developments make it even more important to keep proper track of your gambling activity so you can minimize the tax cost of your winnings. The Tax Court, in TC Memo 2009-226 ( Ann L. Laplante v Commissioner of Internal Revenue ) has agreed that a gambler's aggregate (i.e. "net") winnings for the day per casino should be included in gross income and not the individual winnings on a slot machine.

Just as people uses their car for business must keep a record of business mileage, a gambler must keep a record of daily activity. A simple pocket notebook will do. You would indicate the date, location, names of casinos visited and the net activity from each casino for each type of gambling activity for the day.

You must keep a separate recording of each type of game being played at each casino (for instance, slot machine and table games such as blackjack and poker), reporting the net activity from each game. In the case of a table game, the reporting requirements state that you must also make a note of the table number.

Say you play slots for an hour and blackjack for an hour. Each must be reported separately in your log. All of the slot play is netted; all the blackjack play must be separately netted. Losses from one game could not reduce net reportable winnings from another game, even if they occurred in the same casino on the same day.